Loading 8 Votes - +

Obama, GM and Atlas Shrugged

At the urging of the Obama administration, General Motors announced an increase in the speed and magnitude of cost cutting measures Monday. A Wall Street Journal article also explained, “The U.S. Treasury will extend an additional $11.6 billion to GM, in addition to $15.4 billion in existing loans. The government will forgive half the debt in exchange for equity in a restructured GM.” Later, the article quotes a statement by President Obama’s automotive task force: “We will continue to work with GM’s management as it refines and finalizes this plan and with all of GM’s stakeholders to help GM restructure consistent with the President’s commitment to a strong, vibrant American auto industry.”

I’ll give you a minute to let that soak in.

Maybe I’ve been disillusioned for years and this sort of thing is commonplace, but reading it now makes me spit up a little bit. The government owning equity in large corporations? Large corporations making decisions based on the President’s priorities? It doesn’t compute in my free-market brain. Giving a failed (not failing) company money to “save jobs” is terribly short sighted.

And it’s not just any money; it’s taxpayers’ money. Seeing the clear lack of reasonable economic justification for investing in GM, the government decided to force the issue. It’s ridiculous and irrational. If the people had to choose an automaker to nationalize, I’m sure they’d go for one of the most successful. What a concept.

It all brings to mind Atlas Shrugged – something in which I’m not alone. Says another WSJ writer: “When profits and wealth and creativity are denigrated in society, they start to disappear — leaving everyone the poorer.”

Similarly tagged OmniNerd content:

Thread parent sort order:
Thread verbosity:
3 Votes  - +
Props by Brandon

Props to my friend Zach for bringing up the Atlas Shrugged link, which caused me to eventually find the second cited WSJ article.

4 Votes  - +
Bailout bad by scottb

The bailout strategies have been pretty dumb, in my opinion. I’m generally in favor of the economic stimulus efforts, but the bank and auto industry bailouts are bad ideas.

Ultimately, the problem is that these aren’t sound businesses that have been hurt by the economic downturn, who simply need some cash to help them weather it out. They’re failed businesses. The auto makers make cars that nobody wants. The banks made bad investments.

I don’t think, however, that the decision to nationalize the auto industry is actually irrational, though. It’s an example of “moral hazard”. The problem, as the politicians saw it, was that the companies would go under, resulting in (among other things) very visible blue-collar job losses, and they would get the blame. The bailout allowed the to avoid that outcome, and gave them a kind of “plausible deniability” — they can easily claim that they’re acting in good faith, trying to do the right thing, even though we may disagree.

Desperate times call for desperate measures, and I presume that the administration is trying to protect citizens more than shareholders.

The money is being given for equity rather than debt. That means influence on the board and a chance to overrule the decision makers who have failed. We are presuming that public servants would make an even bigger mess of an auto manufacturer than the individuals who ran GM. That may be true under ordinary circumstances, but now the White House has the opportunity to make appointments to the boards of these companies. There should be nothing to stop proven outstanding performers from industry being appointed to represent the Government’s shareholdings.

With good management and a return to profit these government investments could turn out to be profitable for us tax payers. We need to believe that Americans can do this. They are only cars for heaven’s sake!

Hmmm – If government control of military spending led to a $120,000 toilet seat, I wonder how much GM green cars as mandated by the Obama Administration will cost as a result of the government control of the auto industry? Another ‘gift’ to look forward to is a take over the banking industry as well. Wall Street bailout funds have been converted from preferred stock to common stock, which gives the US Govt a majority of voting shares. Looks like back door nationalization of the banks to me.

Mitt Romney blogged about the latest proposal in the GM saga – giving GM to the UAW and the U.S. government. Here’s the content.

GM’s new proposal, clearly produced under government duress, is worse than virtually any of the alternatives. It would give GM to the UAW and the U.S. government and make taxpayers pick up the bills. Of course, billions more from government would be drawn down right away. But the UAW could also depend on the Obama administration to keep up the subsidy for years and years to come. Government and Union co-ownership: It would be as ineffective as it is un-American.

The right course for GM is an out-of-court restructuring or bankruptcy. Either would keep the company in business and rid it of burdensome costs, work rules and obligations. The government could backstop the post-restructuring debt, helping the company get on its feet. GM must not fail: If its costs are brought in line with its competition, it can ultimately thrive and grow jobs. What is proposed is even worse than bankruptcy—it would make GM the living dead.

At first, I read “GM must not fail” as saying it is imperative GM doesn’t fail, but now I think he’s saying it isn’t imperative that GM fail. In either case, it’s interesting to see how a Romney administration might have approached the problem.

2 Votes  - +
A discussion.. by ldsudduth

The other day, a good friend of mine and I were discussing the bailouts, cap and trade, health care, and numerous other items.

He postulated the following:

Would we even be talking about this if there were only, say..1 billion people in the world?

The problems we have are merely symptoms of the larger problem no one talks about….

Too Many People.

Interesting point..

1 Vote  - +
Just remember.. by ldsudduth

I believe it was Gerald Ford who said:

“A government big enough to give you everything you want is a government big enough to take from you everything you have.”

’nuff said..

Share & Socialize

What is OmniNerd?

Omninerd_icon Welcome! OmniNerd's content is generated by nerds like you. Learn more.

Voting Booth

What if a spouse cheats?

8 votes, 3 comments